Uniqlo, Aeon Shut China Stores as Island Spat Escalates

By Bloomberg News -
Sep 18, 2012

Japan's Fast Retailing Co. (9983) and Aeon Co. shuttered stores in China, the world’s second-biggest economy, as a territorial dispute and the anniversary of the Japanese invasion prompted thousands to protest in Beijing, Shanghai and other cities.

Fast Retailing closed 42 of its Uniqlo stores in China, its second-largest market by outlets, and Aeon shut 30 of the 35 stores it has in the provinces of Guangdong and Shandong. Nissan Motor Co. (7201), the largest Japanese carmaker in China, halted production at two factories in the country.

Japan’s purchase last week of uninhabited islands claimed by both countries is threatening trade ties of more than $340 billion and complicating efforts to fortify growth in both countries as the European debt crisis saps demand for exports. Protesters in China have ransacked retailers, smashed store fronts and overturned cars, with fires having damaged a Panasonic Corp. (6752) plant and a Toyota Motor Corp. (7203) dealership.

“If things continue to deteriorate, a possibility, the damage could become serious, recovery might take a year or more, trade could contract,” said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo, which manages about $300 million in assets.

In 2011, China was the largest market for Japanese exports, while Japan was the fourth-largest market for Chinese exports. China’s shipments to Japan totaled $148.3 billion last year while it imported $194.6 billion of Japanese goods, according to Chinese customs data.

Shares Decline

Fast Retailing fell the most of any company in the benchmark Nikkei 225 index, dropping 7 percent in Tokyo, the biggest decline since June 5. Nissan fell 5 percent, the biggest drop since May 7, and Honda (7267) Motor Co. slide 2.5 percent, the most since Aug. 1.

The Nikkei 225 Stock Average slipped 0.4 percent. Japanese markets were shut yesterday for a holiday.

Tokyo Governor Shintaro Ishihara triggered the dispute in April when he said he may use public funds to buy the islands, known as Diaoyu in Chinese and Senkaku in Japanese, from a private Japanese owner. Tensions escalated after Japan’s cabinet approved the purchase of the islands for 2.05 billion yen ($26 million) on Sept. 11. China has said it doesn’t accept the move.

Thousands protested in front of the Japanese embassy in Beijing today, demanding control of the islands and calling for boycotts of Japanese goods. Similar demonstrations have taken place in cities including Shanghai, Guangzhou, Qingdao, Nanjing and Harbin in the past week. In Shenzhen, police fired teargas and water cannons to stop protesters from reaching a Japanese department store, Radio Television Hong Kong reported Sept. 17.

Car Sales

Sales of Japanese-branded passenger cars fell last month in China, compared with gains of more than 10 percent for German, American and South Korean vehicles according to the China Association of Automobile Manufacturers. China is the world’s largest car market.

Toyota, Nissan and Honda all reported damage to dealerships in the eastern Chinese city of Qingdao. Separately, Phoenix Satellite Television Holdings Ltd. (2008) showed footage of Japanese cars that had been overturned, with their windshields smashed by protesters.

Nissan halted production at two factories in China yesterday and today, spokesman Chris Keeffe said by phone. Toyota halted output at some China plants, according to spokesman Joichi Tachikawa.

Baidu Animation

Many dealerships in China that sell Japanese cars have shut after some outlets were attacked and vandalized, said Luo Lei, deputy secretary general of the China Automobile Dealers Association.

“We don’t know how far damages on Japanese companies will extend while all they can do is just hold still,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. in Tokyo. “Investors will take a wait-and-see attitude toward companies related with China such as retailers and autos.”

Clicking the image above Baidu’s search box took users to a separate web page with the message “The Diaoyu Islands belong to China!” and an enlarged image of the Chinese flag over the disputed area.

Protesters in Qingdao ransacked a Jusco supermarket and a Heiwado Co. (8276) department store in the city of Changsha was attacked, the Kyodo News Agency reported. Jusco is operated by Aeon Co. (8267)

Stores Closed

Fast Retailing spokesman Aldo Liguori said by phone that there had been no reports of injuries or damage to outlets, with the company continuing to monitor the situation. A Uniqlo store in Beijing’s Sanlitun neighborhood was closed with a sign posted on its front saying normal operations have been halted for the day.

Seven & I Holdings Co. closed 211 stores in China and Jusco has shut 30 outlets as of today.

All Nippon Airways Co. (9202) said about 3,800 seats from Japan and 15,000 on trips from China have been canceled on flights through November with no services scrapped so far, spokesman Ryosei Nomura said. Japan Airlines Co. (9201) said 5,000 passengers have canceled bookings through October.

In the southern city of Guangzhou, police said they detained seven people for vandalizing a Japanese-brand car on Sept. 16 and held another three for smashing an unidentified store front. The northern city of Xi’an banned “illegal” protests in some areas and said any vandalism in the name of “national interest” won’t be allowed, according to a statement posted on the local public security bureau’s website.

Sony, Panasonic

Panasonic is temporarily closing plants in the cities of Qingdao, Suzhou and Zhuhai. The electronics maker is checking on damage at its Qingdao and Suzhou facilities, spokesman Atsushi Hinoki said.

Canon Inc. (7751) closed two of its plants in Guangdong province and one in Jiangsu province through today to ensure the safety of employees, spokesman Hirotomo Fujimori said. No damage has been reported at the factories, he said.

Hitachi Ltd. (6501) halted production at two factories in China and partially closed a third while Beijing and Shanghai office staff are working from home, spokesman Yuichi Izumisawa said today.

Sept. 18 is the anniversary of the Mukden Incident, also known as the Manchurian Incident, which took place in 1931 near what is now the Chinese city of Shenyang and led to the Japanese invasion of the northeastern portions of China.

The protests this month have come as economic growth in China moderated in the second quarter to the slowest pace in three years.

That’s already led Komatsu Ltd. (6301), the world’s second-biggest maker of construction equipment, to cut its full-year profit forecast as a Chinese government campaign to rein in home prices has depressed demand.

Japanese Investment

The easing economic growth hasn’t stopped Japanese investments in China.

Foreign direct investment by companies from Japan surged 19.1 percent from a year earlier to $4.73 billion in the first seven months of 2012, according to the Chinese Ministry of Commerce. Investment from the European Union fell 2.7 percent and funds from the U.S. rose 1 percent during the same period.

In 2005, demonstrations were held across Chinese cities in a row over school textbooks that critics said downplayed Japan’s wartime atrocities.

Demonstrators called for a boycott of goods from Japan, and some companies in the country reconsidered their investment plans for China. Still, Chinese imports from Japan surged 15.2 percent in 2006, almost triple the previous year’s pace.

“Sino-Japan relations are often described as hot in trade and cold in politics, but now even the trade relationship is getting cold,” said Zhang Jifeng, a researcher with the Institute of Japanese Studies at the Chinese Academy of Social Science. “It’s hard to tell which side would suffer more from cooling trade but for sure the hurt will be deep for both.”